Announcement by the Ministry of Finance on the Results of the Joint Inspection of the Asset Valuation Industry for 2023

Announcement No. 5 of 2024 by the Ministry of Finance of the People’s Republic of China

To implement the requirements of documents such as the “Notice Issued by the General Office of the CPC Central Committee and the General Office of the State Council on Further Strengthening Financial and Accounting Supervision,” the Supervision and Evaluation Bureau of the Ministry of Finance, together with the China Association of Asset Appraisers (hereinafter referred to as CAAA), continues to strengthen joint supervision over the asset appraisal industry in accordance with laws and regulations including the “Asset Appraisal Law of the People’s Republic of China,” thereby promoting improvements in the quality of practice within the industry and fostering a cleaner business environment. The following announcement provides information on the joint inspection conducted in the asset appraisal industry for the year 2023:

I. Status of Inspection Implementation

In 2023, the Supervision and Evaluation Bureau of the Ministry of Finance, together with the China Association of Asset Appraisers, organized 10 regulatory bureaus under the Ministry of Finance to conduct a quality inspection of 15 asset appraisal agencies that are registered and engaged in securities services (hereinafter referred to as “appraisal agencies”).

The inspection revealed that 15 appraisal agencies are generally able to conduct their business in compliance with appraisal standards and professional ethical guidelines; however, significant issues still remain in areas such as practice quality, internal governance, quality control, and professional competence.

II. Handling and Penalty Measures

After the on-site inspection was completed, the Supervision and Evaluation Bureau of the Ministry of Finance, together with the China Association of Asset Appraisers, reviewed the issues identified during the inspection and organized experts to conduct a re-examination and verification of the major issues, ensuring that the findings were factually clear, supported by solid evidence, based on sufficient legal grounds, and accurately characterized. On this basis, the Ministry of Finance imposed administrative penalties on four appraisal agencies and seven asset appraisers, while the China Association of Asset Appraisers imposed industry self-disciplinary sanctions on six appraisal agencies and 18 asset appraisers. The specific details are as follows:

(1) Hebei Lizhian Asset Appraisal Co., Ltd. was found to have violated regulations by holding or trading shares of relevant listed companies during the project execution period and within the prescribed time limits following project completion. In addition, the asset appraisal report it issued for a certain company’s stable light hydrocarbon engineering project contained errors in cash flow projections, leading to an overestimation of the appraised value. In response to these issues, the Ministry of Finance imposed the following administrative penalties on Hebei Lizhian Asset Appraisal Co., Ltd. in accordance with the law: a warning, an order to suspend business operations for three months, confiscation of illegal gains totaling 130,500 yuan, and a fine of 652,500 yuan. Furthermore, the certified asset appraisers Zhi Yanhua and Cao Zhongzhi were each given a warning and ordered to cease practicing for six months.

(2) The asset valuation report on the total equity value of a certain company issued by Guizhou Qianyuan Real Estate Asset Valuation Firm Co., Ltd. contained several issues, including errors in the calculation of certain parameters used in the income approach, which led to an overestimation of the valuation. Additionally, the asset valuation report on the total equity value of another company issued by the same firm had errors in the calculation of the floor area ratio correction factor used in the land-use rights valuation, also resulting in an overestimated valuation. In response to these significant omissions and deficiencies, the Ministry of Finance imposed administrative penalties on Guizhou Qianyuan Real Estate Asset Valuation Firm Co., Ltd., issuing a warning and ordering it to suspend operations for three months according to law. Furthermore, the signing asset appraisers, Deng Guichuan and He Chunhua, were each given a warning and ordered to cease practicing for six months.

(3) The asset valuation report on a company’s non-patent technology assessment issued by Chongqing Boma Real Estate and Land Asset Evaluation Co., Ltd. contained several issues, including an error in the discount period calculation and an incorrect calculation of the royalty rate for intangible assets, which led to an overestimation of the assessed value. In response to these significant omissions, the Ministry of Finance imposed an administrative penalty of a warning on Chongqing Boma Real Estate and Land Asset Evaluation Co., Ltd. in accordance with the law; and imposed an administrative penalty of a warning and a six-month suspension from practice on the certified asset appraisers Lian Hongbo and Chen Ping, who signed the report.

(4) The valuation report on the value of a certain company issued by Zhongli Asset Appraisal (Beijing) Co., Ltd. contained several issues, including insufficient analysis of the appraisal materials and significantly unreasonable appraisal parameters. In response to these serious omissions, the Ministry of Finance imposed an administrative penalty on Zhongli Asset Appraisal (Beijing) Co., Ltd., issuing a warning and ordering it to suspend operations for three months in accordance with the law. Additionally, the signing asset appraiser, Liu Ying, received a warning and was ordered to cease practicing for one year.

The valuation report on the value of a certain company issued by Zhongli Asset Appraisal (Beijing) Co., Ltd. contained issues such as the signature of the asset appraiser being signed by another person on their behalf. In accordance with the “Self-Disciplinary and Disciplinary Measures for the Professional Conduct of Members of the China Association of Asset Appraisers” (CASS [2018] No. 23, hereinafter referred to as the “CASS Self-Disciplinary and Disciplinary Measures”), the CASS has imposed an industry-wide self-disciplinary penalty of public censure on Zhongli Asset Appraisal (Beijing) Co., Ltd.

(5) The asset valuation report on the total equity value of a certain company issued by Shaanxi Zhengdexin Asset Appraisal Co., Ltd. had issues such as the lack of basis for the valuation of other receivables. The asset valuation report on the value of intangible assets, including patent rights, issued by the same company had problems such as failure to analyze the reasonableness of the data and materials provided by the enterprise. The asset valuation report on the value of assets issued by a certain county had issues such as incomplete records of on-site investigations. In accordance with the “Self-Disciplinary Punishment Measures of the China Association of Asset Appraisers,” the China Association of Asset Appraisers has imposed industry-wide self-disciplinary punishment in the form of public criticism on Shaanxi Zhengdexin Asset Appraisal Co., Ltd.; public criticism on the signing asset appraisers Guo Kai and Xing Lili; and a warning as an industry-wide self-disciplinary punishment on the signing asset appraisers Jiang Zhangyun and Zhang Li.

(6) The intangible asset valuation report issued by Zhongdu Guomai (Beijing) Asset Evaluation Co., Ltd. for a certain company had issues such as the absence of analysis and calculation processes and corresponding records for key parameter selection. The equity value assessment report for another company issued by the same firm contained errors in the working capital calculation formula, leading to an underestimation of the assessed value. Furthermore, the equity value assessment report for yet another company issued by the firm had omissions in the land investment component of the valuation estimation, also resulting in an underestimation of the assessed value. In accordance with the “Self-Disciplinary Punishment Measures of the China Association of Appraisers,” the China Association of Appraisers has imposed a warning as an industry self-disciplinary punishment on Zhongdu Guomai (Beijing) Asset Evaluation Co., Ltd.; and has also imposed warnings as industry self-disciplinary punishments on the certified asset appraisers Gui Chuangshe, Sun Fuyou, Liu Yang, and Liu Yanhong who signed the reports.

(7) The market value appraisal report on an asset group issued by Shenzhen Junrui Asset Appraisal Firm (a special general partnership) contained issues such as incorrect selection of appraisal parameters, leading to an underestimation of the appraised value. The appraisal report on the total equity value of a certain company issued by the firm had deficiencies, including the absence of essential information regarding the selection of key parameters in the working papers. Additionally, the appraisal report on the recoverable amount of a certain company issued by the firm lacked necessary analytical and computational basis and procedures for selecting key parameters. In accordance with the “Self-Disciplinary Punishment Measures of the China Association of Asset Appraisers,” the China Association of Asset Appraisers has imposed a warning as an industry self-disciplinary punishment on Shenzhen Junrui Asset Appraisal Firm (a special general partnership); and has also imposed warnings as industry self-disciplinary punishments on the certified asset appraisers Huang Aijuan, Tan Zanxing, and He Jian, who signed the reports.

(8) The fair value appraisal report on investment properties issued by Ge Lu (Shanghai) Asset Appraisal Co., Ltd. for a certain company contained errors in the selection of parameter values in the calculation formulas, among other issues. Additionally, the asset appraisal report issued for another company’s appraisal project had omissions in the valuation of construction-in-progress projects. In accordance with the “Self-Disciplinary Punishment Measures of the China Association of Appraisers,” the China Association of Appraisers has imposed a warning as an industry self-disciplinary punishment on Ge Lu (Shanghai) Asset Appraisal Co., Ltd.; and has also imposed warnings as industry self-disciplinary punishments on the certified appraisers Liu Liyan, Xu Jiaju, and Yang Saifeng, who signed the reports.

(9) The asset valuation report on the total equity value of a certain company issued by Anhui Hua'an Asset Appraisal Firm Co., Ltd. had issues such as the lack of necessary analytical and computational procedures in determining the final valuation conclusion. Additionally, the asset valuation report on the equity of another company issued by the firm had problems including failure to take into account the tax rate differences between the parent and subsidiary companies when forecasting the income tax rate. In accordance with the “Self-Disciplinary Punishment Measures of the China Association of Asset Appraisers,” the China Association of Asset Appraisers has imposed a warning as an industry self-disciplinary punishment on Anhui Hua'an Asset Appraisal Firm Co., Ltd.; and has also imposed warnings as industry self-disciplinary punishments on the certified asset appraisers Zhang Ya, Jiang Lei, Yuan Zongxiang, and Zhao Yan, who signed the reports.

Next, the Ministry of Finance will resolutely implement the Party Central Committee and the State Council’s decisions and plans to further strengthen financial and accounting oversight. We will earnestly fulfill our primary responsibility for financial and accounting supervision, maintain the intensity of oversight and inspection in the asset valuation industry, strictly investigate and punish illegal and non-compliant activities, firmly crack down on industry chaos, eliminate “black sheep” within the sector, and promote the healthy and sustainable development of the industry.

Ministry of Finance, May 17, 2024